When Down Means Up

06 Mar

 

Most readers are no doubt aware that when a substantial compensation award including future loss of earnings is made in a personal injury case a reduction is normally made which takes into account the interest that can be earned on the lump sum payment. The Discount Rate as it is called is also applied to substantial loss calculations in the Employment Tribunal (see Brentwood Bros (Manchester) Limited v Shepherd [2003] EWCA Civ 380 @ para 16). What this has meant in practice is that the compensation payment is reduced or discounted to reflect accelerated payment.

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Discount Rate

 

Most readers are no doubt aware that when a substantial compensation award including future loss of earnings is made in a personal injury case a reduction is normally made which takes into account the interest that can be earned on the lump sum payment. The Discount Rate as it is called is also applied to substantial loss calculations in the Employment Tribunal (see Brentwood Bros (Manchester) Limited v Shepherd [2003] EWCA Civ 380 @ para 16). What this has meant in practice is that the compensation payment is reduced or discounted to reflect accelerated payment.

The rate was set at 2.5%. The rate was linked to the returns on Gilts. The Gilts rate was used as it was a conservative form of investment reflecting the assumption that a successful Claimant will be a risk averse investor. In these days of low or even negative interest rates the 2.5% discount figure was considerably higher than the gilt rate. So, from 27th February 2017 the rate to be applied has been decreased and is now minus 0.75%. The effect of applying this new Discount Rate is that going forwards compensation payments will increase rather than decrease. Perhaps it is time for the MOJ to start calling it the mark up rate! The press release from the Ministry of Justice can be found here.

Peter D

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